Greening Central Banks for Effective NDC Implementation and Sustainable Development

Discover how the NDC Partnership’s Greening Central Banks initiative is mobilizing the financial sector to drive the implementation of the Paris Agreement and support resilient financial systems.

The physical risks of climate change and an uncoordinated transition to a net-zero economy have the potential to destabilize financial markets and significantly affect the global economy through sharp falls in asset prices, reduced company profitability, shrinking public finance revenue sources and increased costs to the insurance industry. These impacts threaten socio-economic wellbeing and market stability due to increased volatility, job losses, reduced access to credit and overall economic decline. Vulnerable members of society, lacking financial safety nets, stand to be most affected by these economic shocks. 

The financial sector plays a central role in mobilizing the trillions needed to achieve countries’ Nationally Determined Contributions (NDCs) and decarbonize the economy through Long-Term Low Emissions Development Strategies (LT-LEDS) by mid-century. Meeting the goals of the Paris Agreement will require an unprecedented amount of finance. Estimates suggest that USD 5.4 trillion will be needed annually. At the same time, the adaptation finance needs of developing countries are 10 to 18 times greater than current international public adaptation finance flows.
 
As market regulators and supervisors, central banks are uniquely positioned to tackle the financial and economic risks associated with climate change and improve enabling environments to accelerate climate-compatible investments. However, many developing countries need additional capacity and specialized skills to mainstream climate into regulatory and supervisory tools, identify and manage risks and mobilize climate finance.
 
To address these needs, and respond to the growing requests of its members, the NDC Partnership launched the Readiness Support for Greening Central Banks (GCB). This initiative aims to equip central banks in developing countries with the knowledge, institutional capacities and systems to adopt precautionary approaches to climate risks, safeguard and promote green investments, address the climate finance gap and strengthen a whole-of-society approach to climate action.

The IKI is playing a key role in implementing the initiative

The GCB initiative is supporting 20 countries to green their financial sector, including Climate Risk Frameworks and Stress Testing, Taxonomy and Disclosure, Financial Sector Roadmaps and Sustainable Investments. The International Climate Initiative (IKI) is playing a key role in implementing this initiative. With a financial contribution of EUR 20 million, IKI, together with the European Investment Bank (EIB), launched the Greening Financial Systems programme, an initiative that currently supports seven central banks across the globe in response to requests coming from the NDC Partnership. Other key partners supporting the initiative include the French Agency for Development (AFD), the United Kingdom, the World Bank and the Partnership Action Fund. 

Moving forward with support from the NDC Partnership’s extensive membership, central banks are stepping up to green financial systems and accelerate a sustainable transition to a low-carbon and climate-resilient future. The Partnership, with over 220 members, stands ready to support these efforts by providing in-country technical assistance and capacity building tailored to the needs and context of central banks.

The GCB work is actively addressing the findings of the Global Stocktake by mobilizing key stakeholders to unlock investment at speed and scale, remove investment barriers and integrate climate action into national financial systems. The GCB initiative exemplifies a shift towards stronger coordination and programmatic approaches where governments, development partners and the private sector address the fundamental challenges of climate change. 

Click here to read how the IKI supports the NDC Partnership